On this episode of the Alpha Exchange, I’m joined by Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, for a discussion on the forces shaping the equity market and the framework she uses to assess where the S&P 500 should trade. A central theme of our conversation is the strength of corporate earnings. Lori contrasts today’s market with 2022, when the rapid repricing of interest rates coincided with a considerably weaker earnings environment. This time, earnings growth has provided an important offset to pressure on valuation multiples. She also identifies a vulnerability. Her current framework incorporates a 10% reduction to consensus earnings estimates, reflecting concerns about both the non-AI economy and the sustainability of earnings expectations associated with the artificial intelligence investment cycle. We explore whether the extraordinary capital spending of the largest technology companies can be sustained and whether companies outside that group are positioned to participate in a broader recovery in investment. Lori distinguishes between the concentration of spending among the largest companies and the much earlier stages of capital expenditure recovery across the rest of the market. This creates an interesting tension. The companies responsible for much of the market’s earnings strength are also the companies making some of the largest commitments to future growth. Their ability to generate returns on that investment matters not only for their own valuations but for the outlook of the broader index. At the same time, an improvement in capital spending elsewhere in the economy could provide an additional source of support, particularly if the recovery broadens beyond technology. I hope you enjoy this episode of the Alpha Exchange, my conversation with Lori Calvasina.
On this episode of the Alpha Exchange, I’m joined by Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, for a discussion on the forces shaping the equity market and the framework she uses to assess where the S&P 500 should trade.
A central theme of our conversation is the strength of corporate earnings. Lori contrasts today’s market with 2022, when the rapid repricing of interest rates coincided with a considerably weaker earnings environment. This time, earnings growth has provided an important offset to pressure on valuation multiples.
She also identifies a vulnerability. Her current framework incorporates a 10% reduction to consensus earnings estimates, reflecting concerns about both the non-AI economy and the sustainability of earnings expectations associated with the artificial intelligence investment cycle. We explore whether the extraordinary capital spending of the largest technology companies can be sustained and whether companies outside that group are positioned to participate in a broader recovery in investment. Lori distinguishes between the concentration of spending among the largest companies and the much earlier stages of capital expenditure recovery across the rest of the market.
This creates an interesting tension. The companies responsible for much of the market’s earnings strength are also the companies making some of the largest commitments to future growth. Their ability to generate returns on that investment matters not only for their own valuations but for the outlook of the broader index. At the same time, an improvement in capital spending elsewhere in the economy could provide an additional source of support, particularly if the recovery broadens beyond technology.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Lori Calvasina.